Local Audit Bill to create robust new regime and help save taxpayer £650 million

This news article was published under
the 2010 to 2015 Conservative and Liberal Democrat coalition government

A new local audit regime that delivers value for money, greater responsibility for local bodies and the same tough audit standards was set out…

A new local audit regime that delivers value for money, greater responsibility for local bodies and the same tough audit standards was set out in draft legislation today by Communities Secretary Eric Pickles.

Mr Pickles said the proposed legislation would ensure that councils continue to deliver high quality services while stripping out the bureaucracy and expense of the previous centralised regime.

This is the next step in a series of reforms already underway to replace the Audit Commission with a new local audit framework. The Government’s decision to close the Commission and ask it to outsource all of its work to the private sector has already reduced audit fees by a massive 40 per cent.

These reforms are set to save the public purse £650 million over the next five years. They are part of a new approach to local accountability, where councils are held to account by local people rather than answering to central government and support each other to improve.

Under the reforms:

Local bodies will be able to appoint their own auditors from an open and competitive market

Oversight by the National Audit Office, Financial Reporting Council and professional accountancy bodies will ensure that high standards of auditing continue; and

The Audit Commission ‘topslice’ - adding an extra service charge onto local bodies’ audit fees - will be a thing of the past.

Communities Secretary Eric Pickles said:

Today’s draft Bill will recast local audit - making councils more accountable to local citizens, stripping out unnecessary bureaucratic costs, and letting councils appoint their own auditors from an open, competitive market.

By replacing the centralised Audit Commission with a more streamlined and transparent system we will save the public purse £650 million over the next five years. But we are determined to ensure that councils continue to deliver the high quality service their residents deserve, which is why our new framework will uphold the tough standards of auditing we expect.

Local Government Minister Grant Shapps said:

Whitehall is taking yet another step back and handing more responsibility to councils. Town halls are already taking ownership of their accountability - publishing details of their spending, structures and decisions - so it’s clear they are more than capable of appointing their own auditors.

The new regime we’re proposing today will offer a better, more efficient and transparent audit system that offers best value for money for the taxpayers it serves.

Ian Carruthers, Policy and Technical Director at the Chartered Institute of Public Finance and Accountancy (CIPFA), said:

The draft bill provides welcome clarity on the overall shape of the future local public audit regime, as well as the role of qualified professionals within this. CIPFA will continue to work with partners to develop practical supporting arrangements for the new regime.

Alongside the draft Bill, the Government is also publishing proposals for the proportionate audit of smaller local public bodies such as parish councils. This will include the option to have an auditor appointed by an independent body. Those bodies with an annual turnover below £25,000 will no longer be subject to external audit. These, and the majority of all smaller bodies, will instead be held to account through new transparency requirements.

The draft Bill has been published for consultation and pre-legislative scrutiny. The consultation on the draft Local Audit Bill runs until 31 August 2012.

Further details about the consultation and how to respond can be found at Annex A of the command paper in which the draft Bill is published. A response form is available on our website.

The consultation stage impact assessment published alongside the draft Local Audit Bill estimates that the full programme of reforms will save more than £1.1 billion, of which more than £650 million will be realised in the next five years.

The main provisions in the draft Local Audit Bill are:

The repeal of legislation setting up the Audit Commission (the Audit Commission Act 1998) and provision to transfer assets, liabilities and continuing functions to other bodies.

A requirement on local public bodies to appoint an external and independent auditor on the advice of an independent auditor panel.

The creation of a new regulatory framework for local public audit, whereby the Financial Reporting Council and professional accountancy bodies would regulate the provision of local public audit services.

The transfer of responsibility for setting the high level Code of Audit Practice to the National Audit Office.

Powers for the National Audit Office to undertake studies of thematic value for money issues relating to local government, and to access information needed to do so.

The proposals for the audit arrangements for smaller local public bodies are published alongside the draft Local Audit Bill. The key elements are:

A proportionate regulatory regime, and retention of the current ‘limited assurance’ version of audit, which the National Audit Office will set out in a Schedule to the Code of Audit Practice.

Giving smaller bodies the option of having the procurement and appointment of their audit services carried out by a sector-led body, following a proposal from the National Association of Local Councils and Society of Local Council Clerks to establish such a body. Details of their proposal can be found at: www.nalc.gov.uk/Latest_News/Media_Release_31_May_2012.aspx (external link).

Those bodies with turnover below £25,000 will no longer be subject to external audit. This will be counterbalanced by new transparency requirements for all smaller bodies with turnover below £200,000, and local people will still be able to raise objections and have complaints investigated by an auditor if deemed appropriate.

In July 2011 the Government asked the Audit Commission to outsource its in-house practice to the private sector. As a result of outsourcing, local bodies should expect audit fee reductions of 40 per cent from 2012/13. www.communities.gov.uk/news/newsroom/2099373.